Pratt Bid Appears To Hit Bias
By BARBARA NAGY And MICHAEL REMEZ
Courant Staff Writers
Posted May 6 2003
Despite submitting a bid nearly 20 percent lower than that of its European rivals, Pratt & Whitney appears to be on the verge of losing a $3.6 billion contract to power a new Airbus military transport, ratcheting up transatlantic tension over fair trade.
Germany, the United Kingdom and France - the main partners in Airbus' A400M transport program - are considering a veto of the Pratt engine, according to European press reports. French President Jacques Chirac was widely quoted last week as saying he would accept only a European engine.
Airbus has delayed a decision on the contract while a consortium of French, German, British and Spanish engine companies reworks its bid. An announcement is expected this week.
If Airbus gives in to European pressure, it raises new questions about protectionism in the wake of a European Union's "Star 21" study last year, which urges development of the continent's aerospace industry. U.S. manufacturers have long complained that it's hard to compete against state-subsidized European companies.
Paul Nisbet, an analyst with JSA Research in Newport, R.I., said the dispute has been aggravated by disagreements about the war in Iraq - and by the aerospace recession, which hurt the business of aircraft and engine manufacturers globally.
"It has been below the surface for a long, long time," Nisbet said. "It is just bubbling up."
Ironically, Nisbet said, 80 percent of the work on Pratt's PW800 engine would have been done outside North America because of foreign partnerships arranged by Pratt in an effort to win the bid. Those partners would share in profits from the program.
But some analysts say the A400M is unlikely to be the catalyst for a full-fledged trade war. It's a military aircraft, and nations traditionally are protective of their defense businesses. More importantly, they say, the ballooning cost of the transport is likely to hurt sales and teach Europe a lesson about competition. Some doubt the plane will ever be built.
"The bad news is the odds are against them," said Richard Aboulafia, an analyst with the Teal Group in northern Virginia, when asked about Pratt's chances. "The good news is it really doesn't matter."
He said it appears that the Europeans are using Pratt to force down the engine price offered by Britain's Rolls-Royce PLC and its European partners.
Noel Forgeard, the chief executive of Airbus, told reporters last Wednesday that the Rolls-Royce offer was close to 20 percent higher than Pratt's. On Thursday, Airbus said it had agreed, at the request of several European governments, to give the European companies a chance to revise their bid.
To some U.S. observers, Airbus was saying it would do what it could to make sure the Europeans got the work.
"It's just another demonstration that Europe is sticking to its plan," aerospace consultant Mark A. Bobbi said. "It demonstrates the solidarity of those countries."
The blatant protectionism has infuriated executives at East Hartford-based Pratt and at United Technologies Corp., its corporate parent, according to one source. Pratt spokesmen in East Hartford and Quebec declined comment Monday.
Pratt's Canadian unit would manage the project, but the PW800 engine is the first in a family of next-generation motors being developed by the company in Connecticut. Losing the A400M would delay the day when that engine would start drawing a revenue stream, although no one expects Pratt to give up on the engine because of the delay, Bobbi said.
Edward Stockton, a business consultant and former UTC economist, said the Europeans have painted the PW800 as a North American engine in an effort to build opposition to it.
"They have done everything they can to plant that seed. It germinates, I guess, after a while," Stockton said.
European decision-makers are wrestling with competing priorities, said Joel Johnson, vice president for international affairs for the Aerospace Industries Association, a trade group based in Washington.
"They are clearly conflicted. At the moment, the issue is to what degree this is a work program to preserve the European defense industry and to what degree it is to provide a transport alternative and military lift at a reasonable cost," he said.
In the complex world of global partnerships - where Pratt has diverted work away from U.S. companies in order to win contracts overseas - not all Americans are hoping Pratt wins the order.
Doug Rose, president of Aero Gear Inc. in Windsor, said the United States needs to do more to protect its own aerospace industry - just as the Europeans are doing.
"I don't mind the escalating tension," he said. A full-fledged trade war might push American companies like Pratt to give more work to their U.S. suppliers.
Robert Walker, a former Republican congressman who recently was chairman of the Presidential Commission on the Future of the U.S. Aerospace Industry, said Pratt would have a difficult time challenging the award if the European engine makers return to Airbus with a competitive offer.
The Europeans have set up roadblocks to unfettered competition, he said.
"While they nominally agree with the idea that everybody should be able to compete, in their view, it is often a one-way street," said Walker, now a Washington lobbyist. "They should be allowed to compete here, but American companies have high hurdles to get over to compete in Europe."
By BARBARA NAGY And MICHAEL REMEZ
Courant Staff Writers
Posted May 6 2003
Despite submitting a bid nearly 20 percent lower than that of its European rivals, Pratt & Whitney appears to be on the verge of losing a $3.6 billion contract to power a new Airbus military transport, ratcheting up transatlantic tension over fair trade.
Germany, the United Kingdom and France - the main partners in Airbus' A400M transport program - are considering a veto of the Pratt engine, according to European press reports. French President Jacques Chirac was widely quoted last week as saying he would accept only a European engine.
Airbus has delayed a decision on the contract while a consortium of French, German, British and Spanish engine companies reworks its bid. An announcement is expected this week.
If Airbus gives in to European pressure, it raises new questions about protectionism in the wake of a European Union's "Star 21" study last year, which urges development of the continent's aerospace industry. U.S. manufacturers have long complained that it's hard to compete against state-subsidized European companies.
Paul Nisbet, an analyst with JSA Research in Newport, R.I., said the dispute has been aggravated by disagreements about the war in Iraq - and by the aerospace recession, which hurt the business of aircraft and engine manufacturers globally.
"It has been below the surface for a long, long time," Nisbet said. "It is just bubbling up."
Ironically, Nisbet said, 80 percent of the work on Pratt's PW800 engine would have been done outside North America because of foreign partnerships arranged by Pratt in an effort to win the bid. Those partners would share in profits from the program.
But some analysts say the A400M is unlikely to be the catalyst for a full-fledged trade war. It's a military aircraft, and nations traditionally are protective of their defense businesses. More importantly, they say, the ballooning cost of the transport is likely to hurt sales and teach Europe a lesson about competition. Some doubt the plane will ever be built.
"The bad news is the odds are against them," said Richard Aboulafia, an analyst with the Teal Group in northern Virginia, when asked about Pratt's chances. "The good news is it really doesn't matter."
He said it appears that the Europeans are using Pratt to force down the engine price offered by Britain's Rolls-Royce PLC and its European partners.
Noel Forgeard, the chief executive of Airbus, told reporters last Wednesday that the Rolls-Royce offer was close to 20 percent higher than Pratt's. On Thursday, Airbus said it had agreed, at the request of several European governments, to give the European companies a chance to revise their bid.
To some U.S. observers, Airbus was saying it would do what it could to make sure the Europeans got the work.
"It's just another demonstration that Europe is sticking to its plan," aerospace consultant Mark A. Bobbi said. "It demonstrates the solidarity of those countries."
The blatant protectionism has infuriated executives at East Hartford-based Pratt and at United Technologies Corp., its corporate parent, according to one source. Pratt spokesmen in East Hartford and Quebec declined comment Monday.
Pratt's Canadian unit would manage the project, but the PW800 engine is the first in a family of next-generation motors being developed by the company in Connecticut. Losing the A400M would delay the day when that engine would start drawing a revenue stream, although no one expects Pratt to give up on the engine because of the delay, Bobbi said.
Edward Stockton, a business consultant and former UTC economist, said the Europeans have painted the PW800 as a North American engine in an effort to build opposition to it.
"They have done everything they can to plant that seed. It germinates, I guess, after a while," Stockton said.
European decision-makers are wrestling with competing priorities, said Joel Johnson, vice president for international affairs for the Aerospace Industries Association, a trade group based in Washington.
"They are clearly conflicted. At the moment, the issue is to what degree this is a work program to preserve the European defense industry and to what degree it is to provide a transport alternative and military lift at a reasonable cost," he said.
In the complex world of global partnerships - where Pratt has diverted work away from U.S. companies in order to win contracts overseas - not all Americans are hoping Pratt wins the order.
Doug Rose, president of Aero Gear Inc. in Windsor, said the United States needs to do more to protect its own aerospace industry - just as the Europeans are doing.
"I don't mind the escalating tension," he said. A full-fledged trade war might push American companies like Pratt to give more work to their U.S. suppliers.
Robert Walker, a former Republican congressman who recently was chairman of the Presidential Commission on the Future of the U.S. Aerospace Industry, said Pratt would have a difficult time challenging the award if the European engine makers return to Airbus with a competitive offer.
The Europeans have set up roadblocks to unfettered competition, he said.
"While they nominally agree with the idea that everybody should be able to compete, in their view, it is often a one-way street," said Walker, now a Washington lobbyist. "They should be allowed to compete here, but American companies have high hurdles to get over to compete in Europe."
